As the bank, it will remove 1% loan processing fee for new borrowers to start with, while look to reduce lending rates in the future. At present it will lend at 15-25% annual rate.

"We have completed all the formalities last week and is ready to launch Utkarsh Small Finance Bank with five full-fledged branches," managing director Govind Singh told ET.

This is the first one to launch operation after demonetisation in this small finance bank space. CDC has pumped in Rs 150 crore in tier II capital in the company barely 10-12 days back.

Utkarsh Micro Finance with Rs 700 crore net worth will be the holding company for the new bank, which will cater to the poor in largely in the northern belt.

CDC is its key equity investor along with International Finance Corporation and Aavishkaar Goodwell. Utkarsh raised Rs 395 crore from local investors four months back to bring down foreign holding to below 49%, a norm for small finance banks.

Utkarsh becomes the third player in this space after Capital Small Finance Bank and Equitas Small Finance Bank. Reserve Bank of India has offered in-principle license to 10 financial services companies including eight micro lenders.

"It's a soft launch and we plan a mega launch in April. In the next few months, our focus will be in addressing the challenges in terms of repayment collection and streamlining the process of branch operation," Singh said.

There are pockets where getting loans back from borrowers is still regularised as cash availability remains an issue following demonetisation.

Singh said the bank will offer 6% interest on savings bank accounts. Deposit rates for one year would be 8.25-8.50%, about 150 basis points higher than what State Bank of India offers.

It plans to have about 490 branches by March 2018. This includes 351 existing microfinance branches which will be into general banking branch. The company has also approached RBI for 138 new branch licenses.